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Why firms
become multinational enterprises

 

 

Toyota is one example of a multinational
enterprise. It originated from japan in 1933 and by 2009, it employed 320808
people worldwide. It has grown to become the world largest automobile maker by
sales and production. Toyota now have manufacturing plants in over 25 countries
and it continues to grow. When considering becoming a multinational company,
organisations could face different types of problems, such as, cultural, economic,
political, environmental etc.

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one reason firms become mne’s is
to ensure they are protected from potential risks and uncertainties.

Nokia is another example of a multinational
enterprise. In total, they employ over 101,000 people worldwide. They have
located factories in less developed countries which means that there are lower
costs for labour and housing, meaning they can maximise profit.  By diversifying where each part of the product
is produced, nokia reduce their cost of production and it means that they are
close to various different markets. Nokia’s annual revenue is around $23 billion;
therefore, this means that by internationalising themselves, they have large
sales amounts in over 150 countries.

In 2012, nokia was the world’s
second largest mobile phone make in terms of unit sales and had a market share
of 18%.

 

Some countries are more advanced
than others, therefore by becoming a mne and splitting production, businesses
are able to expand and have access to better respurces. This allines with
division of labour as firms can then use countries such as china for lower
labour costs and other countries such as Sweden for their technical and design expertise.adam
smith

 

The global business environment
is increasing; therefore, businesses will need to adjust to the increases by
internationalising themselves. By trading locally, businesses are not able to
make a name for themselves globally or even maximise profit. Therefore, companies
decide to sell their product in a wider range of countries, especially
countries with a better consumer market and a larger population. It also means
that they can increase their brand identity. These companies then customize their
product according to the specific country which allows them to target the
consumers in that particular country, therefore expanding their customer base. By
expanding a business and making it a MNE means that its sales are likely to increase
and in result its profit which is the ultimate motive for most companies. Many of
the world’s largest companies – such as Toyota, Apple, IBM and Shell – attain more
than half their sales from countries outside their origin.

One example of when a business
would need to alter it’s product in order to be a MNE is KFC, they are one of
the biggest fast food companies in the world and in order to be dominant in as
many companies as they can they would need to make their product according to
each country. Such as, if they want to be successful in Islamic countries, they
would need to use halal chicken as this would open up their target audience.

 

Another motivation for a firm to
go international is that resources such as land, labour and capital is
available at a lower cost. This then means that the coast of production is
decreased allowing the business to offer competitive prices to consumers.

 

Some companies decide to become
mne’s so that they can diversify themselves against risks and uncertainties. If
a business has entered another country, they aren’t only reliant of the economy
of the home country. For example, if a firm’s home county has a small economy
then they will benefit from becoming a mne and trading in countries such as the
US which has a large economy and a large consumer market.

 

 

 

another main reason is FDI which
is imoportant for the growth f mne’s as if a firm doesn’t invest, it becomes immensely
difficult to internationalise. Some ways to do this is by acquiring/ merging
with companies in foreign countries or greenfield investment which involves building
its operations in other countries. Fdi is a way for companies to reach
globalisation as they have investments in different countries. Maerges and
acquistions are a good way to go ablout this. It allows them to join forces
with a already established business in that partuialr country therefore having
a prior customer base which in return reduces the risks.

Foreign investments means that
you have ownership of foreign property for a financial return. This could be
owning assets in other countries or land.

If moving abroad, mnes have
certain responsibilities such as creating jobs for people in which they are not
mis treated, this is important for them, especially big companies as if they
are exploiting workers it can threaten to diminish their brand name.

One of the worlds largest companies,
Nike was once under investigation after they were accused of exploting workers.
It ewas found that these workers faced poverty, harassment, dismissal and
violent intimidation. It was also discovered that workers in Vietnam were being
exposed to toxic fumes. Nike was then faced with backlash after these
accusations which effected the brand name negatively.

 

One method a firm uses of
becoming a mne is through exporting and importing its goods. This could be
either its merchandise or its services such as a tourism

 

When a company wants to increase
its customer range to different countries, it is better for the firm to open
manufacturing plants abroad as they a

By having a presence in a foreign
country and opening manurfaxcturing plants abroad, businesses are able to meet
the demand in those countries without having to 

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